Credit rating upgrade

THE decision by Moody’s to upgrade Pakistan’s long-term sovereign credit rating from Caa3 to Caa2 could not have come at a better time. The agency has also revised its outlook for the country’s beleaguered economy from stable to positive. The rating upgrade, which comes after a similar announcement by Fitch, is inspired by Pakistan’s improving macroeconomic conditions, especially liquidity and its external position, which have improved from very weak levels amidst a staff-level agreement with the IMF for a fresh $7bn bailout. Despite the upgrade, the new rating still remains within the agency’s “speculative grade’ band and continues to reflect the nation’s “very weak debt affordability that drives high debt sustainability risk”. Yet the agency has noted that Pakistan’s default risk has reduced even though the nation’s interest payments would continue absorbing about half of government revenues over the (next) two to three years.